A new Georgia law has expanded which area businesses can get research and development tax credits.

The law, signed into law by Gov. Nathan Deal in May, allows companies to offset state income tax liability and, under certain circumstances, claim a tax credit against Georgia payroll tax withholding obligations.

“I’ve always favored increasing the tax credit because I felt like it would attract more companies to Georgia,” said George M. Israel III, president of the Ferst Foundation and former chairman and CEO of the Georgia Chamber of Commerce.

The R&D tax credit lets companies offset as much as 50 percent of their state income tax liability by directing the funds toward research and development activities. The new law modifies its predecessor by removing the eligibility requirement, which stipulated that the company must be in operation for five years or less.

The idea behind that restriction was to support startup companies. Now, all Georgia companies are potentially eligible for the credit, providing they meet certain other criteria, regardless of how long they have been in business.

“The R&D tax credit allows the company, which is not yet generating revenue, to reduce the amount of cash owed to the state, freeing up more capital to invest in new technology and resources,” said Mark Zyla, managing director at Acuitas Inc., an Atlanta-based valuation firm. “It also effectively lowers the cost of capital, which is especially important for early-stage enterprises.”

The R&D tax credit is based on 10 percent of the amount by which qualified research and development expenses in a year exceed a base amount. The base amount is determined by multiplying gross receipts for the year by a ratio of R&D expenses in each of the prior three years compared with gross receipts during those same years.

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